REVA INVESTMENT PVT. LTD. versus COMMISSIONER OF GIFT TAX, GUJARAT II

Citation: [2001] 3 S.C.R. 360 · Decided: 02-05-2001 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
REVA INVESTMENT PVT. LTD. 
v. 
COMMISSIONER OF GIFT TAX, GUJARAT II 
MAY 2, 2001 
B 
[S.P. BHARUCHA AND D.P. MOHAPATRA, JJ.] 
Gift Tax Act, 1958-Sections 2(xii) and 4(l)(a)-Transfer of jewellery 
worth Rs. 13,91,350 to wholly owned subsidiary companies in return of 
allotment of fully paid equity shares of total face value of Rs. 5,69,400-
C Deemed Gift-Inadequate consideration-Held, there is no deemed gift since 
the value of the shares transferred in consideration is based on the value of 
the jewellery. 
Assessee-Company transferred its jewellery to its twelve wholly owned 
D subsidiary companies, which in return allotted fully paid equity shares of 
total face value of Rs. 5,69,400. After the transfer, the jewellery constituted 
the only asset of the twelve companies against the entire share holding of 
the assessee. In pursuance to a notice under Section 16(1) of the_ Gin Tax 
Act, 1958, the assessee filed a 'nil' return of gifts. Another notice under 
Section 15(2) of the Act was issued by the Revenue holding that the market 
E value of the jewellery on the date of transfer was Rs. 13,91,350 and that 
there was a 'deemed gift' of Rs. 8,21,950, being the difference between the 
market value of the jewellery and the face value of shares allotted, for which 
the assessee is liable to pay gift tax under the Act On appeal by the assessee, 
Commissioner (Appeals) set aside the order of the Gift Tax Officer. The 
Tribunal upheld the same holding that there was no 'deemed gift' !'8 the value 
F taken for the jewellery must be taken to be the value offully paid up shares 
issued to the assessee on the break up method of valuing of shares of private 
limited companies. On a reference under Section 26(1) of the Act, the High 
Court answered the question of law in favour of the Revenue. Hence the 
appeal by the assessee. 
G 
Allowing the appeal, the Court 
HELD : 1.1. The provision of 'deemed gift' under Section 4(1)(a) of the 
Gift Tax Act, 1958 is intended to bring within the purview of the tax such 
transactions which are entered into between the parties to evade gift tax. For 
H invoking deeming provisions of Section 4(1)(a) of the Act, inquiries have to 
360 
REVA INVEST PVT. LTD. v. COMMR. OF GIFT TAX 
361 
be made regarding: (1) the existence of transfer of property and (2) the A 
extent of consideration given. It is necessary for the assessing officer to 
show that the property has been transferred othenvise than for adequate 
consideration. The finding as to inadequacy of the consideration is the 
essential sine--qua-non for application of the provisions of 'deemed gift'. The 
provision is to be construed in a broad commercial sense and not in a narrow B 
sense. In order to hold that a particular transfer is not for adequate 
consideration, the difference between a true value of the property transferred 
and the consideration that passed for the same must be appreciated in the 
context of the facts of the particular case. If the transaction involves transfer 
of certain property in lieu of certain other property received then the process 
of evaluation of the two items of property should be similar and on such C 
evaluation, if it is found that there is appreciable difference between the value 
of the two properties, then the transaction will be taken as 'deemed gift' to 
the extent provided in the Section. It is to be found that the transaction was 
on adequate consideration and the parties deliberately showed the valuation 
of the two properties as the same to evade tax. Such a conclusion cannot be 
drawn merely because according to the assessing officer there is some D 
difference between the valuation of the property transferred and the 
consideration received. (365-A-E] 
1.2. There was no gift involved in the transaction, for whatever is the 
value of the jewellery is in fact the value of the shares transferred in E 
consideration. Revenue has committed an error in treating the transaction 
between the parties as a 'deemed gift'. The High Court was in error in holding 
that in the facts and circumstances of the case the transaction could be held 
to be a 'deemed gift' within the purview of Section 4(1)(a) of the Act and in 
holding the assessee liable for the tax. [366-F] 
Bireswar Sarkar v. Gift Tax Officer, (1997) 223 ITR 404 Cal.; C.G.T. v. 
lndo Traders and Agencies (Madras) P Ltd., (1981) 131 ITR 313 Mad.; 
Commissioner of Income Tax v. Jacobs (P) Ltd .. (1999) 237 ITR 433 Ker. and 
Commissioner of Gi

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